IMF lifts UK 2026 growth forecast but warns of future risks

The International Monetary Fund upgraded its outlook for the United Kingdom, forecasting a 1.3% expansion of the economy in 2026, up from the 1% predicted in July. The IMF also said the UK is likely to have the lowest annual borrowing among the G7 by 2031, a position it shares only with India.

The body noted that global economic conditions have improved, partly due to increased investment in artificial intelligence, but cautioned that higher energy prices and elevated interest rates could dampen consumer spending and business investment in the coming year. It expects UK inflation to average 3.3% in 2025 and raised its 2026 inflation estimate to 2.8% from 2.4%.

Former Bank of England deputy governor Sir Howard Davies attributed the UK's relatively strong fiscal position to a government with a parliamentary majority that is committed to addressing the deficit, potentially through tax increases, public-service cuts, or a combination of both. He contrasted this with the United States, which he said has offered little on deficit reduction, and with France and Germany, which lack majority governments.

"So, we [the UK] are not great students, but we look somewhat better than some of the others we are sharing the class with," Davies said.

The IMF also projected that the UK will be the second-fastest growing economy in the G7 this year, alongside Germany, though growth is expected to slow in 2027.